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Sunday, March 18, 2012

SPX Update and More: Why I Haven't Yet Joined the Long-Term Bull Camp, Part I

We're going to move through this article starting with the short-term and ending with the long-term.

Friday performed exactly as expected, "choppy sideways with a slight upward bias." The second part of that prognostication projected at least a short-term turn would start either Friday or Monday. Nothing happened on Friday to change my outlook, in fact, the action seemed to confirm it.

The preferred count isn't certain whether that turn started on Friday or not. There may or may not be a little more out of the market as far as a new high, the charts are unclear. The preferred count got us into the 1400-1408 target range, and sometimes it's just not possible to narrow things down to two or three points, except in real time. These updates obviously don't have the benefit of being written in real-time while a move is unfolding, but instead examine static snapshots of the market.

Some indices are giving the appearance of completing fourth wave corrections, though this isn't a foregone conclusion. Sometimes a nest of 1's and 2's can look like a fourth wave. If this is a small degree fourth wave, then there might be one small pop left, but there shouldn't be a ton of upside before a correction: 1410-1412 SPX would be about the max upside expected for this leg; ideally less. Note this is a short-term expectation. The question I'm still unable to resolve is whether this presumed correction will simply head down to the high 1380's/low 1390's before resuming upwards, or whether it will mark a much larger turn.

Either way, I do believe an intermediate-degree turn is getting close, so I think the next bigger turn will finally be something that bears can sink their teeth into. In a moment, I'll give some more detail on why I don't think the rally will go on forever, but let's look at the 5-minute SPX chart first.

Zooming out a bit on the SPX, it's quite difficult to sort the black from the blue count, leaving me feeling a bit black and blue mentally. One thing the blue count has going for it is the fact that it would allow a much cleaner 2-4 trendline. We're simply going to have to wait and see the form taken by the next decline to help sort one from the other.

It's also possible that the fourth wave triangle I was mentioning could be blue wave 4. I think that's less likely, but if the market were to shoot straight up out of that triangle and head above 1420, then it has probably gone directly into blue wave 5 without passing "Go" or collecting $200. Again, a move like that would surprise me -- but I've been surprised before.

Something the black count seems to have going for it is the RUT (and others, such as NYA) which appear to have completed, or are close to completing, 5-wave rallies. RUT and NYA charts below. I originally published these charts in this update, and so far the markets have performed right in line with those charts.

Another interesting longer-term relationship in the NYA is shown below. The NYA has now perfectly reached the price expectations of the triangle pattern formed in November and December. This triangle is also one of the reasons I'm not long-term bullish as of this moment -- triangles almost always occur as the penultimate wave in a move. In other words: they occur as the second-to-last wave -- which means they're found either in the middle of, or late in, a waveform, but very rarely early in one.

Let's use that as a segue into some of the reasons I haven't yet joined the long-term bull camp.

Some of the charts below are charts I've shown before, others are "new to you."

Exhibit A is the daily MACD on the Dow.

Exhibit B is the Dow Bullish Percent Index (BPINDU), now descending from a massive overbought condition.

Exhibit C is the Nasdaq Composite, which is still beneath its old secular bull market trendline. This trendline is 38 years old, so it's as well-established as they come.

Exhibit D is the German DAX composite, which has not yet exceeded its 2011 high -- and also formed a much deeper retracement off that high than SPX. The depth of that retracement tends to rule out the more bullish counts -- and the DAX and SPX generally trade with a very high degree of correlation. It's hard to imagine a world where SPX rallies significantly while DAX declines, or vice-versa.

And finally, a series of chart studies on Chevron. Of course, Chevron isn't the whole market, by any means; however, it's one of the largest companies on the Dow and comprises nearly 2% of the SPX -- so it's hard to imagine a bull market running the distance without the participation of companies such as Chevron.

This weekend I studied more than 20 years-worth of Chevron charts, at 8 different degrees of trend. That took about 5-minutes. Ha! I wish. Anyway, Chevron appears to be forming a textbook ending diagonal, which suggests that prices will return to the level at which the diagonal began -- at the minimum.

The chart series starts with a 20-year view, and gradually zooms in down to the 30-minute level. The chart annotations contain all the info one needs, with the exception of the mention that while the alternate count suggests a 25% decline, the preferred count suggests a much deeper decline of 50% or more.

In conclusion, I'm not certain if there's a little more upside coming before at least a small turn, though if there is any, I wouldn't expect much upside. That's the first question the market needs to answer. Once that question is answered, then we can take a look at the shape of any forthcoming decline and try to determine if there will be another leg up, or if that's all she wrote.

Because of the NYA and RUT, I'm still leaning toward the idea that this is a complete five wave rally, and the turn will be a larger turn -- here where virtually no one expects it.

Beyond that, examining the bigger picture, I currently see no reason to be long-term bullish. The counts still allow for the possibility of a correction and another thrust up, perhaps into the mid-1400's -- but it does appear that the time for a bigger turn is finally drawing near. Trade safe.

Wow, record after record... 1 millon views, 13 charts, then 10 millons views and :) You did alot of work really, thank you.Pretzel, what do you think about VIX targets, it seems like its under $10 or even lower $9?

Pretzel, I'm familiar w/ EW but never really learned about it. Recently came across your site and have been reading daily (several months) and feel from all I've read I've come across someone who is helping me (slowly) make sense of it and is fair and unbiased. My only other experience has been through Precter's organization, but it appears his group is nearly always bearish and doesn't seem to interpret what the market is saying via unbiased glasses. Anyway, thanks for your efforts, I appreciate reading your work.

Excellent graphics on the "state of the markets"....I used to approach each market day with significant confusion. But since finding your "control tower" I feel like a 16 year old with a new drivers license driving a 66 Goat. Thanks PL....I think you're one of a kind.

Excellent Post PL -very informative, the CVX analysis is a great learning example for me. When you say a 4th wave could be nested wave 1s and 2s, is their any future trend information that this change in count assignment typical indicates?

PL, I read your article. It's excellently written. Great big picture analysis. Funny how even though you've done it before, not long ago, it still needs to be re-checked. The Chevron analysis seems to suggest that even if Israel - Iran hostilities do break out, don't expect too much impact on oil prices. Backward inference (from chart to world events) but somewhat compelling.

Big premium due to limited number of outstanding/tradeable shares. 984K shares short and appears the squeeze is on. Very speculative play here....at some point (when the shorts are done covering) this will need to adjust back to NAV. I asked PL for help in determining the "possible" price outcome from the flag. Possible $8.40 high, but more likely $1.90 added to the breakout price. My best guess is breakout took place at $5.49 so add $1.90 to that and the target sell price is $7.39. Lord only knows how high the shorts could push this though. I think I'm getting nose bleed right now.

My count on GAZ is it finished an extended fifth wave within wave three of the final wave 5 up. Needs to hold above $5.59 in order to not violate peak of wave one of five. If so, then fifth and final wave up is now pending. I love this stuff.

FYI.....I think we all are aware of who Charles Nenner is. Last weeks comment was the Nat Gas cycle was up into March 22 and a buy signal would be a break above $2.34. He stated previously that he thought Nat Gas would bottom in April. For what it's worth. I do not subscribe to Nenner, info from another "reliable" trader/investor.

I held partly because according to PL's article: "If this is a small degree fourth wave, then there might be one small pop left, but there shouldn't be a ton of upside before a correction: 1410-1412 SPX would be about the max upside expected for this leg; ideally less."

Good luck (to the both of us). I'm still holding from prior purchase at $16.78 - I bought two lots and that was the average. I hate being underwater, but to a certain degree, this is but a crapshoot. Katzo said earlier to not jump the gun and he's probably the wiser on this unpredictable instrument. Objectively, it can either way at this point, I guess. Unless you factor in PL's assessment that $VIX (not TVIX) is at the historic bottom. Still a crapshoot. http://screencast.com/t/2XmoGfKj ,,, BTW, billabuster challenged me to post my trades. So there, that was what I did, bought TVIX at 16.78 now it is 14.98, so 11% underwater presently.

Taking a longer dated short position IWM, buying the 183/178 May put spread. I think the end of this rally is near enough at this point that I am comfortable taking that position as the thing hits it's upside target on the ascending intraday triangle. Am paying about 1.75 for the possibility of returning near 5. An acceptable r/r trade. Taking a light position of about 3 spreads. That should be enough koolaid for today. DirtnRockguy62 from the cell phone

PL, I am using CAT and X as my model proxies for index behavior for last 6 months. CAT models DOW and X models SPX. Let me know what you think. Am not using energy stocks due to Iranian premium and net exporting of gasoline masking performance. Did you get a look at the UGA chart? Did I get the wave count right? DirtnRockguy62 from phone

I agree, I am long since SPX broke 1400. Good level to short is ~1425-1440 IMHO (in other words around the wave 5 target PL has on his plots!!). SPX is riding the upper BB; which is a very strong signal IMHO. Will see how long it lasts, as many TI haven't really given a sell signal at all yet.

I agree too. Trying to pick a market top is like trying to nail jello to a tree. So far this market has done nothing but move up at a slow and steady rate except for the minor pullback we saw a few weeks ago. For anyone trying to short this market I would recommend waiting until the market really shows signs of slowing its upward momentum. Forget the technical analysis, it hasn't worked well in this market. I'm not saying that the market will go up forever but this seems to be a very determined bull. Better to wait it out if you're a bear.

One cannot expect 9 out of 9. EWT is one form of TA. And by definition is governed by the premise that the future will repeat the past. Traveling back to the future is a reasonable reference, but a straight no-no. That is the main reason why PL has had a hard time nailing down the waves. The future, by definition, is unknowable. But with USD 7-10 trillion sloshing around all over the world, one can make an educated guess:

Well I lost $212.16 on my first foray into the TVIX vortex but I do feel better about this entry. I guess at this point it could go to zero. No bears left no volatility only the bulls of pamplona running amok.

BAC slowly drifting lower after 1.45pm... same time when AAPL dropped further from 600...I think banks and techs are leading this market up today... let's see what happens now...Could definitely go both ways...

I agree. These guys are very nervous about any corrections because they afraid that the market may crash, so they'll keep pushing market up until reality sits in. ANON20 scenario may happen in the near future although his timing was off.

And 1 of the 3, XLF is hitting a dense resistance zone immediately. IMO, we're presently at a neither bullish nor bearish state. If last week, you were "hell bent on shorting", presently you could do either, IMO, and be justified. This morning was obviously good for longs, in hindsight, and now is probably favoring shorts. Just a guess, as it always is. :-)

I should imagine that Bernankednezzar is more nervous about the bond market going down, than he is about a stock market correction. Maybe his plan is let the general pop do his bond purchases for him, as money flees a stock downtrend.

Ray_1 , I agree. Because it has been pushed up so relentlessly, this market has the potential for a sudden violent reversal that leaves most wondering "what happened... everything was going so great..." (similar to the market drop of August, 2011)

Ditto. Not that the iPad3 isn't a great device. It is, but the public only has so many discretionary $$s to spend. We're in a depression, for crying out loud. On Saturday, I went to a local outdoor mall and saw how many storefronts were shuttered. Shadow stats for unemployment is 23%.

I meant wave 4 of 5 of PL's blue 3 or black 5. Do you think blue 4 will only go to 1402? It seems like the upmoves in this market shoot for the higher fib retracements and the downmoves come up way short, so that makes sense to me.

That's great! They are all tripping over each other to see who can quote the highest number. Sounds just like the dot.com bubble. Let's get all the price target increases for AAPL in right here and right now... More please! Do I hear $1000?

To be clear, AAPL has lots of long term potential, but I think AAPL is due for a rest in the short term.

get any stops run during the day? if so, did you renter quickly or have the patience to wait for a better entry? that's my problem, I set stops but then just jump back in....commisions and spreads then kick my ass. I just don't have the discipline to truely trade well it seems. My other account, where I can't move in an out quickly, I'm doing much better in.

The way it looks now we could mess around down here, ES 1400 (1399 to 1403) in Globex or into tomorrow and then a blast up to 1411, the EW5 run on the 5 minute chart. This is the EW4 down I was looking for.

UVXY down 13% tvix up 1%, short squeeze is on going for TVIX shorts since last week. I heard it is near impossible to borrow shares now. It will be interesting to see how all these plays out. SPX and VIX both green today, something yet to come??

I was lucky and unlucky. We are having bad storms and I lost electricity in the middle of a trade. I use mental limits because I get stopped too often and then it turns. Well the market gapped down during this blackout and I was way down when I got back up. I averaged down and luckily the market rallied late to save me. I could have held longer and made another +10 but already felt like I scraped by and was fortunate to pull a positive. This is one bad way using mental limits can hurt you.My commissions are only $3.50 so not bad.I am drawing up a new entry point now. I posted last week I thought we would top this week and we might have a bit higher to go but the end is in sight. Then again, I am new at this so what do I now. PL, Katz and others are the experts.

I agree, but somehow everywhere I go, someone's got an iPhone. So many businesses struggling to survive. Even though I dislike Apple as a company, I have to say they did everything right with the iPad 3. Also, my iPad 3 arrived 3 days earlier than promised. I don't know if that's Apple's typical sandbagging, or if sales just aren't as hot.

That's the one beef I have with this board after following with a high degree of regularity over the past 6 months. The analysis from PL seems to be invaluable regarding the market as a whole, whether you follow every trade or not, but the daily rants about Apple and it's products by a segment of this board seem almost desperate at this point. I mean sure, if you shoot 100 free throws, one or two are bound to go in at some point, but when the day comes you actually make one or two, does that actually make one a good free throw shooter?!?!

I saw a chart posted on here the other day showing Google and it's paralleled rise a few years back to Apple's current rise and then it's drop to $200......what the chart failed to show was the subsequent rise back up over $600 in the years following. By all means, be a gambler and short away based on "probabilities" that the market and Apple will tank. But betting on this company to fail at this point because of bad business or products just seems absurdly foolish to me.

Hereare a few corrections to your post. “seems to be invaluable” needs to bechanged to “is invaluable” or you wouldn’t be a regular here over the last 6months. What others say about Apple isof no concern to you at all….what’s your beef? Why do people frequent a blog,so they can agree with everyone – hell no, we want thought provoking statementsor opinions. Freedom of the expression I think it’s called. Your basketballanalogy borders on the inane…did you actually think that through beforeposting? If you’re going to take thetime to draft 10 lines of fluff…why not incorporate some original, constructive,helpful commentary that we can debate. Please enlighten me/us with your mostrecent, relevant investing comment. What was your market idea that neededfurther review or analysis? The only thing I thought after reading your postwas “want some cheese with that …………..”

I suggested back when Apple was sub-500 that Apple was a suicide short, and only for those traders who had "something to prove" and thought they were smarter than the market. I'm sticking to that. Could Apple reverse tomorrow? Sure, by why step in front of a freight train *hoping* it'll hit the brakes?

If they want to bet against AAPL, let them do so and may you profit from it. Why do I get the impression that you already are profiting? :)

I'm with PL and will get out of the way. I think the main reason isn't business practice or products, but simply unsustainable price action. You might be a bit oversensitive to some of the comments here.

1's and 2's are like the wind-up for a move. They sometimes present as a series of slightly higher high/higher lows (or vice versa) and often look like a consolidation -- until the breakout and then the next wave (wave 3) breaks up or down rapidly.

If the scenario of this report plays out in the Q1 earnings, more people will be questioning BLS about its big employment numbers and the drop of employment rate, which are the main catalyst of this market rally. Can you speed up hiring when your company has dismal earning? The same thing about inflation, more people start wondering about BLS inflation numbers when the price of food and energy skyrocketed. At this time, Fed may not dare to go for QE3, which is another big catalyst of this market rally. When BLS BS numbers with a bunch of Lies in the middle become obvious to people, the market crash is highly possible.

News on AAPL that may be interesting to you all who are wondering when AAPL may stumble:From CNBC on the new iPad overheating. This is the same problem Sony faced with its laptops.....http://www.cnbc.com/id/46786775/

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